Three Decades of High economic growth and failure of Indian Republic

I thank the author Prof. Sankaran Krishna and The Hindu for such an highly informative article on Republic day. Its a great article to read in fact I read it thrice to get deep insight into the facts and views of the article.I have never came across such an in depth analysis particularly with reference to the middle class. 

In many of the social parameters India is way behind our neighbors.This sums up the fact after liberalization only the elite have benefited not the larger section of poor. 

Even after three decades of High economic growth, the Indian Republic has failed to achieve broad social progress. An obsession with GDP growth cannot deliver social progress.

A must read article to all "The great number fetish"

One of the most prominent features of India’s middle-class-driven public culture has been an obsession about our GDP growth rate, and a facile equation of that number with a sense of national achievement or impending arrival into affluence. In media headlines, political speeches, and everyday conversations, the GDP growth rate number — whether it is five per cent or eight per cent or whatever — has become a staple of our evaluations of the state of national well-being and future trajectory. Ever since Goldman Sachs (an investment banking firm headquartered in New York city) released a report in 2003 (“Dreaming with BRICs: the path to 2050”) touting Brazil, Russia, India and China (BRIC) as the harbingers of a new wave of global accumulation, we Indians have been afflicted by an optimism disease with little empirical traction. Since then, the GDP number’s implications for India’s development, her attractiveness as an investment site, our standing relative to China, and our competitiveness in the games nations play have become an inescapable part of our social lives. As the former CEO of Infosys and leading public intellectual Nandan Nilekani notes in his book Imagining India, “Wherever I go, I find that Indians know our growth numbers backward and forward, and there is a strong, common feeling among us that our country has finally come of age.” 

Fast growth, limited results 

Yet, in a recent essay, the eminent economists Amartya Sen and Jean Drèze pointed to an important problem with equating India’s economic performance with its GDP growth rate. They noted: “There is probably no other example in the history of world development of an economy growing so fast for so long with such limited results in terms of broad-based social progress.” Sen and Drèze were referring to the fact that for about 32 years now (since 1980), India has averaged annual GDP growth rates of approximately six per cent — whereas, the nation’s ranking in terms of the Human Development Index has remained unchanged over that period: we were ranked an abysmal 134 in 1980, we were ranked exactly that in 2011. In 1980, about 80 per cent of our population subsisted on less than two dollars a day, and that percentage has declined by as little as five per cent since then. Comparable growth rates sustained over similar lengths of time have utterly transformed societies in the 20th century: South Korea, Taiwan, Singapore, and large parts of China, to mention the most prominent ones. They have gone from largely poor, illiterate and agrarian societies to middle class, literate, urbanised and industrial societies with standards of living vastly superior to ours. Whatever may be said about India, it is obvious that no structural transformation of our largely poverty-stricken economy has occurred and what is more, none seems very likely in the immediate future. 

Not only have three decades of high GDP growth gone unaccompanied by a societal transformation, we seem to have regressed on certain fronts. For instance, while India ranked either first or second in 1980 within South Asia (defined here as comprising India, Pakistan, Bangladesh, Nepal, Sri Lanka, and Bhutan) on most yardsticks such as life expectancy, female literacy, infant mortality, maternal mortality ratio, improved sanitation, child immunisation, and mean years of schooling, today we are ranked either fifth or last among the South Asian nations on these same yardsticks. Ironically, the only indicator in which we have done well is in the rate of GDP growth per annum. A country like Bangladesh, whose annual GDP growth rate has averaged about half that of India’s over these years, has done vastly better in terms of translating that growth to the quality of life for its poor, its young, and its females. On most yardsticks that matter, Bangladesh now outperforms India. That 30 years of more than twice the much-disparaged “Hindu” rate of growth has left us at the absolute rock-bottom of the world tables in terms of malnourished children (44 per cent at the last count — significantly more than that anchor of all things sorry and sad about this world, sub-Saharan Africa whose percent of underweight children is 25 per cent) should tell us that there is something seriously amiss about looking at the annual growth rate of the GDP to measure the well-being of a society. 

On demographic dividend 

The Goldman Sachs report argued that by the year 2050, if Brazil, Russia, Indian and China grew at a certain rate per annum, they would be among the world’s six largest economies in terms of overall size. This does not tell us anything about either per capita incomes (in terms of which these countries would remain well behind the more affluent nations) or the quality of life of the majority of people therein. The report based its projections mainly on something called the “demographic dividend.” In simple terms, “young” societies like India and China have a disproportionately large percentage of people in the workforce relative to those outside it. The size of the working-age cohort is central to the overall attractiveness of an economy from the perspective of an investment bank like Goldman Sachs because it is likely to be in the market for all sorts of goods — homes, automobiles, appliances, electronics, cosmetics, fast-food, etc. The working-age cohorts’ employment earnings, moreover, can support a social security net for those who have retired and now have to subsist on pensions and savings. On a comparative yardstick, India’s demographic profile was seen by the BRIC report as most favourable because this ratio of working to non-working populations would remain in favour of the former well into the 21st century in our case. 

In the euphoria over the BRIC report (it was the basis for the disastrous “India Shining” campaign of the Bharatiya Janata Party; the same projections were echoed in speeches by Prime Minister Manmohan Singh, Union Finance Minister Chidambaram, Deputy Chairman of the Central Planning Commission Montek Ahluwalia; and they were quoted ad nauseam in the mainstream media) certain basic facts were glossed over. 

Firstly, the GDP is a statistic from within the field of National Accounts whose very definition indicates its limited ambit: it is the total market value of all final goods and services produced in a country in a given year. In other words, it is a statistic that measures the quantity, not the quality or content, of economic activity in a society. When a country liberalises — either domestically as India began to do in 1980 or across its international borders as we began after 1991 — the increased volume of production, investment, trade and market exchanges will inevitably result in an increase in the GDP. To infer from the growth in GDP any consequences for societal welfare is not logical. The GDP’s precursor was devised during the Depression of the 1930s as western governments (in Britain and the United States most prominently) tried to get a handle on the basic statistics of the different sectors of their economies in order to plan state policies to get them out of recession and on to growth. Simon Kuznets and John Maynard Keynes, both pioneers in its creation and measurement, warned against confusing GDP with anything other than a measure of the sum of economic activity of a society, and especially against confounding it with societal welfare. Something like the Exxon Valdez disaster in Alaska will inevitably increase the GDP as the massive clean-up means billions of dollars will be spent, whereas the environmental impact of that disaster did nothing to diminish the GDP of the U.S. as damage to nature is rendered an externality. On the other hand, the positive impact of people in a community bartering or exchanging services (“I’ll baby sit for you this week while you fix the leak in my roof”) goes unregistered on the GDP metric. 

Secondly, the BRIC report emerged not from an academic body or a policy think-tank. It came from an investment bank that was interested in getting people to put their money into a newly created “Emerging Market” fund. Creating a buzz about these economies, and finding some hard nugget or fact that seemed to suggest their fortunes were on the rise, is an inevitable part of the marketing of such funds. The “demographic dividend” argument offered a perfect empirical “fact” of just this sort. The extrapolations into the future (projections were made as far as 2030 and even 2050) by a firm that could not foresee (and was in fact a substantial culprit in) the financial crisis that engulfed the world economy barely four years later were essentially meaningless. It was moreover a tautological argument in the sense that given the overall size of the BRIC economies it was inevitable that their GDPs would over time end up being among the largest in the world. The greater the buzz Goldman Sachs could create about the BRIC economies, the likelier the “success” of their Emerging Market funds in the short run, which added to their profits as the firm made money off every transaction therein. The Goldman Sachs report should have been assessed as advertising copy rather than as unbiased prognostication about the future of the world economy. (By the late 2000s, as the BRIC economies with the exception of China failed to perform to expectations, Goldman Sachs had already lost interest in them and had started promoting MIST, another emerging market fund based on Mexico, Indonesia, South Korea and Turkey. The analogy to advertising sloganeering rather than economic analysis should be obvious to anyone here.) 

Thirdly, for India (or any society) to realise its demographic dividend, at least three factors are critical: its youth need (a) quality education, (b) good health, and (c) jobs that pay a decent wage and enhance their intellectual and other skills. The story of India’s post-independence development has been one of failure across all three of these sectors, and the picture has not improved post the economic liberalisation initiated in 1991. Recent studies have confirmed what every Indian already knows: the quality of public education at the primary and secondary levels has been abysmal. In large part this is because since 1947 we have emphasised tertiary education for a narrow middle-class and elite, and underinvested in primary and secondary education for the masses. We have already seen that with the highest rate of malnourishment of children below the age of six in the entire world, and a public health infrastructure that exists more on paper than on the ground, especially outside the cities, large segments of our populace are not in good health. The difficulty of getting clean water, the unavailability of toilets, and decrepit or non-existent sewage systems, have also meant high incidence of preventable diseases like cholera, typhoid, and dysentery. And when it comes to jobs, recent decades of high growth, especially since 2000, have been accompanied by either stagnation or even decline in the absolute numbers of those employed in the organised sector of the economy. Unlike Korea or Taiwan or China (all three of whom also had a thoroughgoing land reform that eliminated landlordism and other feudal holdovers) whose growth was concentrated initially in relatively labour-intensive sectors such as manufacturing, ours has been skewed heavily towards skill- and education-intensive sectors like Information Technology, pharmaceuticals, and business process outsourcing. The performance in these sectors has been stellar in terms of exports and their contribution to the GDP, but not in terms of their ability to generate large numbers of jobs. Twenty years after the onset of the phenomenal IT boom, even with the most expansive definition of its ambit, this sector only employs about nine million Indians while India produces about 13 million new entrants into the job market every year. 

What all this adds up to is this: given its history of inadequate investment in human capital and the present patterns and trajectory of its economy India seems unlikely to reap the demographic dividend that other societies seem to have cashed in on. 

There is nothing inherent in demographic patterns that guarantees economic success: whether a certain set of preconditions eventuates in socially widespread and meaningful growth depends, as always, on state policies that prioritise human capital (the health and education of its citizenry); on efficient state and political party institutions to deliver these programmes to the people; and on the ability to insulate these programmes from being hijacked by elites and middlemen. 

Middle class focus 

How then can one explain the Indian middle class’ obsession with the GDP growth number, and the extent to which many of us have equated high growth rates of recent years as a sign of our emergence as a global power? One has to step outside the domain of the empirical and the economic, and into the social and the psychological to understand this obsession with a number, this fetish we have developed for the GDP. 

The Indian middle class is not conventional in the sense of being sandwiched between rich, conservative elites and the lowest third of a society that is poor and potentially revolutionary. In that ideal type, the middle class was the vanguard in the emergence and consolidation of liberal democracy, individual freedoms, capitalist development, and a politics of moderation and civil society. There was a convergence between the material and ideological needs of this middle class that made it the champion of liberal democracy and market capitalism. Or as the comparative historian Barrington Moore Jr. put it in a pithy formulation: “no bourgeois, no democracy.” In India, the middle class is folded into the apex and is the dominant component of the top 20 per cent of society in terms of income and wealth, as well as in terms of cultural and symbolic capital as reflected in its education, caste-status and westernisation. It is overwhelmingly upper caste and its substantive, as distinct from rhetorical, commitment to egalitarianism and democracy outside its own narrow ambit, and often even within it, is shallow. This class’ self-image is that of a meritocratic group that has advanced through education, discipline, and deferred enjoyment. However, both the colonial period and the decades after independence show this “merit” to be based more on privileged and restricted access to western education and professions that emerged in the wake of modernisation rather than by rising to the top in a context marked by widespread equality of opportunity. 

Even if its commitment to the idea of inclusive economic development that makes a significant impact on the daily lives of the vast majority of its fellow citizens was sincere, we have neither the political institutions — state bureaucracy or party cadres — nor the political commitment to act in ways that will, at least in the short-run, go against this middle class’ own material interests. This disjuncture between a set of ideological or rhetorical commitments to development, on the one hand, and, on the other, the absence of the institutional means to achieve them, as well as the fact that their very achievement might jeopardise our own status as an elite, makes the Indian middle class peculiarly susceptible to technocratic quick-fixes. Our desire to be seen by our peers in the rest of the world as an emerging economy, or a successful nation, seems to often overwhelm our ability to regard the economic and social reality that surrounds us with a clear eye. The GDP growth rate number, and its neat extrapolation into the future by reports like the one by Goldman Sachs that seem to literally leapfrog over the difficult, messy and forbidding social and political tasks that are the inevitable prerequisite of successful economic development, thus capture our imaginations in ways that are obsessive. 

A fetish is an inanimate object imbued by humans with magical powers and believed to bring good luck or fortune. We have fetishised the GDP number and read all our hopes and dreams into a statistic that was never designed to bear the weight it has come to carry. The reverence and faith with which we have treated the GDP number says more about the social-psychology of our middle class and our desire to be seen as a successful and emerging economy than it does about the actual state of life for the vast majority of our fellow Indians. 

(Sankaran Krishna is professor of political science, University of Hawaii at Manoa, Honolulu, U.S. Email: Krishna@hawaii.edu)

Source: The Hindu